Gareth Southgate accepts that England have a "significant" gap to bridge if they are to compete with the world's best teams.
In Southgate's four games as manager, England have won two and drawn two but remain 13th in the FIFA rankings.
The Three Lions have not reached the semi-finals of a major tournament since Euro '96 on home soil, and Roy Hodgson stepped down after England's last-16 defeat to minnows Iceland at last year's European Championship.
Southgate will get another measure of his side when England face world champions Germany in a friendly next month and the 46-year-old says all aspects must improve if they are to challenge the international elite.
Speaking to The Telegraph, he said: "We've got to be better - everything we do has got to be better. Even being second in the world is not good enough.
"We've got to work smartly on how we can bridge that gap, as it's a significant one."
Several of England's top stars will be fretting over their place in the squad, with captain Wayne Rooney having been consigned to a bit-part role at Manchester United this season and Jamie Vardy failing to recapture the form that fired Leicester City to the Premier League title last term.
And Southgate issued a stark warning that past accomplishments and reputation count for nothing when it comes to picking his squad.
"I never pick on reputation - form has to come into it. You have to look at the opposition and the type of game you're expecting and select the players best suited to that," he added.
Southgate, who famously missed a penalty in England's Euro '96 shootout defeat to Germany, issued a challenge to his players to earn their place in England folklore.
"Every time you play for England you've got the chance to make history," he said.
"Do they want to be remembered? I know in my generation we got close. This is the current crop's chance."